DCIT, CIR-4(2), KOLKATA, Kolkata V. M/s Stewart Holl (India) Ltd., Kolkata

ITA 317/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1527 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 01-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Assessee Lawyers: P N RAJENDRA
• Keywords: Revenue expenditure
• Section: 37

Judgement Text

1 ITA NO.317/KOL/2016 STEWART HOLL (INDIA) LTD., AYS- 2010-11 , D , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: KOL KATA () .., . ' # $% % , '() [BEFORE SHRI A. T. VARKEY, JM & DR. A. L. SAINI, A M] I.T.A. NO. 317/KOL/2016 ASSESSMENT YEAR: 2011-12 DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-4(2), KOLKATA. VS. STEWART HOLL (INDIA) LTD. (PAN: AAECS3091C) APPELLANT RESPONDENT DATE OF HEARING 16.11.2017 DATE OF PRONOUNCEMENT 15.02.2018 FOR THE APPELLANT SHRI SAURABH KUMAR, ADDL. CIT(DR) FOR THE RESPONDENT SHRI P. N. RAJENDRA, FCA ORDER PER SHRI A.T.VARKEY, JM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)-2, KOLKATA DATED 17.12.2015 FOR AY 2010-11. 2. THE FIRST GROUND OF APPEAL OF REVENUE IS AGAIN ST THE ACTION OF THE LD. CIT(A) IN ALLOWING THE DISALLOWANCE OF RS.2.42 CR. MADE BY TH E AO. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CULTIVAT ION, MANUFACTURING AND SALE OF TEA. THE ASSESSEE IN THE COURSE OF ITS BUSINESS ADVANCED FRO M TIME TO TIME CERTAIN SUMS OF MONEY TO DOOTERIAH AND KALEJ VALLEY TEA ESTATES PVT. LTD. (H EREINAFTER REFERRED TO AS DTKV) FOR PURCHASING MANUFACTURED TEA PRODUCED BY ITS GARDEN SITUATED IN DARJEELING. THE ASSESSEE PURCHASES THE TEA FOR BLENDING. THE OUTSTANDING AD VANCES GIVEN TO DTKV AS ON 31.03.2004 STOOD AT RS.2.42 CR. THE ASSESSEE BROUGHT TO THE NO TICE OF THE AO THAT THESE WERE TRADE ADVANCES IN THE COURSE OF THE BUSINESS. IT WAS BRO UGHT TO THE NOTICE OF THE AUTHORITIES BELOW THAT DTKV WAS ONE OF THE GROUP COMPANIES AND 95.47% OF ITS PAID UP EQUITY SHARES WAS HELD BY THE ERSTWHILE SHAREHOLDERS WERE PURCHASED B Y TOUBRO INFOTECH INDUSTRIES LTD. (HEREINAFTER REFERRED TO AS TOUBRO INFOTECH) IN T HE YEAR 2004 BY AN AGREEMENT DATED 2 ITA NO.317/KOL/2016 STEWART HOLL (INDIA) LTD., AYS- 2010-11 06.12.2013. IT WAS BROUGHT TO THE NOTICE OF THE AU THORITIES BELOW THAT DTKV SUFFERED LOSSES EVERY YEAR DUE TO HIGH COST OF PRODUCTION AND UN-RE MUNERATIVE PRICE REALIZATION AND THE ACCUMULATED LOSS STOOD AT RS.20,04,72,874/- AS ON 3 1.03.2003 WHEREAS IT HAS PAID UP CAPITAL AS ON THE SAID DATE WAS RS.17,49,900/- AND IT HAD N O REVENUE RESERVES AND ITS LIABILITY EXCEEDED THE CURRENT ASSETS AS ON 31.03.2003 BY RS. 11,43,70,504/-. THE ASSESSEE CONSIDERING THE AFORESAID FACTS DECIDED TO TREAT TH E SAID ADVANCE GIVEN TO DTKV AS DOUBTFUL FOR RECOVERY AND MADE A PROVISION THEREOF IN ITS BO OKS OF ACCOUNT FOR THE PREVIOUS YEAR ENDED ON 31.03.2004. THE ASSESSEE DURING THE HEARI NG BEFORE THE AO PRODUCED EVIDENCE OF ADVANCE PAYMENT MADE TO DTKV. THE DETAILS OF PAYME NTS WITH CHEQUE NOS., NAME OF THE BANKS AND ALSO COMPUTERIZED GENERAL LEDGER FOR THE PREVIOUS YEAR ENDED ON 31.03.2003 AND 31.03.2004 CONTAINING THE ACCOUNTS OF DTKV WERE PRO DUCED. THE AO NOTED THAT THE DTKV HAD A BALANCE OF RS.6,09,42,000/- AS ADVANCE RECEI VED AGAINST THE SALE OF TEA IN ITS ACCOUNTS IN THE PREVIOUS YEAR ENDING ON 31.03.2003. HOWEVER, THE AO NOTED THAT IN THE BALANCE SHEET OF DTKV AS ON 31.03.2004 DID NOT REFL ECT ANY SUCH OUTSTANDING ADVANCE AND, THEREFORE, THE AO CONCLUDED THAT THERE WAS NO ADVAN CE OUTSTANDING IN THE BOOKS OF DTKV ON SALE OF TEA AS ON 31.03.2004. THE ASSESSEE SUBM ITTED BEFORE THE AO THAT SINCE DTKV TREATED THE SAID AMOUNT AS LIABILITIES NO LONGER RE QUIRED IN THE BOOKS OF ACCOUNT OF THE YEAR ENDED 31.03.2004 IT DID NOT REFLECT ANY OUTSTANDING ADVANCE. THE SAID PLEA OF THE ASSESSEE WAS NOT ACCEPTABLE TO THE AO AND HE DID NOT ALLOW T HE CLAIM OF THE ASSESSEE THAT IT HAS WRITTEN OF RS.2.42 CR. AS IRRECOVERABLE ADVANCE AND CLAIMED IT AS A TRADING/BUSINESS LOSS. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO WAS PLEASED TO ALLOW THE CLAIM OF THE ASSESSEE. AGGRIEVED, THE RE VENUE IS BEFORE US. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE FACTS STATED ABOVE ARE NOT REPEATED HERE FOR THE SAKE OF BREVITY. THE ASSESSEE, WHO IS IN THE BUSINESS OF TEA HAD ADVANCED AN AMOUN T OF RS.2.42 CR. TO PROCURE TEA FROM DTKV, WHICH WAS A SISTER CONCERN OF THE ASSESSEE. THIS ADVANCE ACCUMULATED AS ON 31.03.2004 AT RS.2.42 CR. BY AN AGREEMENT DATED 06 .12.2013 DTKV HAS BEEN ACQUIRED BY ANOTHER GROUP TOUBRO INFOTECH INDUSTRIES LTD. THE ASSESSEE HAD PRODUCED EVIDENCE TO SHOW THAT AN AMOUNT OF RS.2.42 CR. WAS GIVEN AS TRADE AD VANCE TO THE DTKV TO PROCURE TEA FROM 3 ITA NO.317/KOL/2016 STEWART HOLL (INDIA) LTD., AYS- 2010-11 IT. THE ASSESSEE ALSO PRODUCED THE ASSESSMENT ORDE R OF AY 2004-05 TO SHOW THAT THE SAID AMOUNT I.E. RS.2.42 CR WAS REFLECTED AS PROVISION F OR BAD AND DOUBTFUL ADVANCE WHICH WAS DISALLOWED AND ADDED TO THE COMPOSITE INCOME OF THE ASSESSEE. WE NOTE THAT BY ADDUCING EVIDENCE OF GIVING ADVANCE TO DTKV THE GENUINENESS OF THE TRADE ADVANCE CANNOT BE DOUBTED. THE EXPRESSION EXPENDITURE USED IN SEC. 37 OF THE ACT INCLUDES THE AMOUNT WHICH IS REALLY A LOSS AS HELD BY THE HONBLE APEX COURT IN CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD. 312 ITR 254 (SC). FROM THE AFORESA ID FACTS IT IS CLEAR THAT THE AMOUNT OF RS.2.42 CR. WHICH HAS BEEN ADVANCED TO DTKV HAS NOT BEEN RECOVERED BY THE ASSESSEE AND THEREFORE, THE NON RECOVERY OF ADVANCE IS A BUSINES S LOSS AND SUCH LOSS IS AN EXPENDITURE COVERED U/S. 37 OF THE ACT. WE NOTE THAT THE LD. C IT(A) HAS TAKEN NOTE OF THE FACT THAT THE AO OF DTKV AND THE ASSESSEE ARE THE SAME AND, THERE FORE, IN CASE IF THE AO HAD ANY DOUBT AS TO WHETHER THE ASSESSEE GOT BACK THE AMOUNT IN Q UESTION, IT COULD HAVE BEEN EASILY VERIFIED BY HIM. SINCE THE AO HAS NOT MADE ANY ADV ERSE FINDING IN THIS RESPECT AND THERE IS NO EVIDENCE TO SUPPORT THAT DTKV HAS RETURNED THE A DVANCE GIVEN TO IT BY ASSESSEE IN ANY MANNER, THE LOSS OF RS.2.42 CR. IS AN ALLOWABLE EX PENDITURE AND HAS BEEN RIGHTLY ALLOWED BY THE LD. CIT(A) AND WE DO NOT FIND ANY REASON TO INT ERFERE WITH THE ORDER OF THE LD. CIT(A), WHICH IS HEREBY CONFIRMED. THIS GROUND OF APPEAL O F REVENUE IS DISMISSED. 4. GROUND NO. 2 RELATES TO THE ACTION OF LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS.7,77,113/- WHICH WAS SPENT BY THE ASSESSEE ON AC COUNT OF RIVER PROTECTION WORK. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FOUR GA RDENS VIZ., DEJOO TEA ESTATE, HARMUTTY TEA ESTATE, SESSA TEA ESTATE AN BORPATRA TEA ESTATE WHI CH WERE SITUATED ON THE BANKS OF RANGA NADI, DIKRONG NADI, SESSA NADI AND DILLI NADI RESPE CTIVELY. BECAUSE OF HEAVY RAIN IN ARUNACHAL PRADESH AND THE RELEASE OF WATER FROM THE DAMS CAUSES HEAVY FLOOD WHICH RUSHES INTO BANKS OF TEA ESTATE AND DESTROY TEA PLANTS WHI CH HAPPENS DUE TO THE LAND SLIDE CAUSED BY HEAVY RAINS. IN ORDER TO PROTECT ITS ASSETS AND PR EVENT LOSS OF TEA GARDENS AND TO REDUCE THE VELOCITY OF THE WATER, PLACED RIVER SPURS AND REPLA CE THE SPURS WHICH GETS DAMAGED DUE TO HEAVY FLOOD. THE ASSESSEE PRODUCED THE EVIDENCE IN RESPECT TO THE CLAIM OF EXPENDITURE FOR SAND BAGS, BOULDERS ETC AND FOR THE FOUR ESTATES HA S CLAIMED A TOTAL AMOUNT OF RS.7,77,113/- 4 ITA NO.317/KOL/2016 STEWART HOLL (INDIA) LTD., AYS- 2010-11 WHICH WAS DENIED BY THE AO ON THE REASON THAT THE S AID EXPENDITURE IS OF CAPITAL NATURE. ON APPEAL, THE LD. CIT(A) WAS PLEASED TO DELETE THE SA ME. AGGRIEVED, THE REVENUE IS BEFORE US. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. FOR THE SAKE OF BREVITY WE ARE NOT REPEATING THE FACTS AGAIN. WE NOTE THAT ASSESSEE HAS INCURRED AN EXPENDITURE OF RS.7,77,113/- FOR PROTEC TING ITS TEA GARDENS FROM HEAVY FLOODS OF RIVER WATER DUE TO RAINY SEASON OR WHEN THE SHUTTER OF DAMS ARE OPENED. THE EXPENDITURE MADE IS FOR THE PURPOSE OF PROTECTING THE BUSINESS OF THE ASSESSEE AND IS AN ALLOWABLE EXPENDITURE. THE EXPENDITURE FOR FRESH SAND BAGS A ND BOULDERS TO REPLACE THE DAMAGED SPURS CANNOT BE SAID TO HAVE ENDURING BENEFIT TO THE ASSE SSEE. THESE ARE TEMPORARY MEASURES TAKEN WHICH GETS DAMAGED WITH PASSAGE OF TIME AND NEEDS R EPLACEMENT AT THE TIME OF FLOOD. THE SAID EXPENDITURE CANNOT BE HELD TO BE OF CAPITAL NA TURE AND THE LD. CIT(A) HAS RIGHTLY ALLOWED IT AS REVENUE EXPENDITURE WHICH ACTION WE C ONCUR. THEREFORE, THIS GROUND OF REVENUES APPEAL IS DISMISSED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER IS PRONOUNCED IN THE OPEN COURT ON 15.02.2 018 SD/- SD/- (DR. A. L. SAINI) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :15TH FEBRUARY, 2018 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT DCIT, CIRCLE-4(2), KOLKATA. 2 RESPONDENT STEWART HOLL (INDIA) LTD., CAMELIA H OUSE, 14, GURUSADAY ROAD, KOLKATA-700 019. 3. THE CIT(A) KOLKATA. 4. 5. CIT KOLKATA DR, ITAT, KOLKATA. / TRUE COPY, BY ORDER, SR. PVT. SECRETARY